Buying houses today is considerably different than it was just a year ago. Declining home values have left many homeowners owing more on their mortgage than their property is worth. The current credit clog prohibits buyers from obtaining credit. Millions of borrowers who obtained subprime loans using no down payment are now facing foreclosure. In a nutshell, the housing market is in serious trouble.
The majority of people buying houses in today’s market are engaging in alternative financing such as seller carry back mortgages and lease-to-own agreements. Using seller carry back financing, the seller agrees to carry back all or part of the loan. In essence, the seller becomes the finance company.
In most cases, a down payment is required. The typical seller carry back mortgage consists of 10-percent down payment, 10-percent seller carry back and 80-percent traditional lending. However, seller carry back mortgages can be drafted to suit the needs of both buyer and seller.
Seller carry back can be beneficial to both parties. The seller is able to sell his property in a stale market and the buyer is able to purchase property he might not have been able to finance. Seller carry back financing is pretty straightforward. Buying houses using this financial strategy usually requires the assistance of a real estate attorney.
Lease-to-own is quickly becoming the preferred alternative to renting. Sellers lease their property for a term of two to five years. A portion of the rent money is applied toward the purchase price. In most cases, tenants provide a down payment to the seller. At the end of the contract, the tenant obtains financing using the down payment and purchase money to secure the loan.
A typical rent-to-own contract might require the tenant to pay 10-percent down and apply 20-percent of the monthly payment toward the purchase price. Tenants have the option to bow-out of the contract; however, they will lose the down payment and monies applied toward the purchase price.
Another technique used for buying houses is the short sale. When lenders engage in short sales, they agree to accept less than the amount owed on the loan. The homeowner must locate a buyer within a specific timeframe or face foreclosure.
Houses place for sale through short sales are usually listed at about 10-percent under market value. It is important to realize that lenders usually engage in short sales when homeowners are facing foreclosure. Oftentimes, these properties require extensive repairs or renovations because the homeowner was unable to maintain the house.
Engaging in short sales can be a frustrating experience for buyers. Lenders want to obtain as much money as possible and usually aren’t willing to negotiate on the price. Buyers must be prepared to engage in multiple counter-offers with lenders and be willing to wait several months to close on the property.
Buying houses in today’s market requires creative financing or the ability to purchase properties with cash. Buyers able to adapt to current market conditions have the potential to obtain exceptional real estate deals.